Microsoft’s Internet Explorer browser is still the world’s most popular, but its dominance is being steadily eroded by competition from Mozilla, Google and Apple. Can a new, aggressive approach to privacy change that? Can Microsoft really protect users from tracking across the Web–and do users really care?

Dean Hachamovitch, who oversees IE for Microsoft as a corporate VP, gives Walt Mossberg an update on the browser wars.

Greetings! We’ll be starting shortly. If you were in the room right now with our select crowd, you would have just heard some Aerosmith. And now, one of my favorite Van Morrison songs : “Jackie Wilson Said.” Also, we’re not using the classic red D interview chairs for this one. Going with a kind of teal blue. Now you know!

Some Isley Brothers now.

Some Elvis Costello. Don’t know this one, though.

And…here’s Walt Mossberg and Kara Swisher.

Kara is wearing something that might have been bedazzled. Walt’s wearing Waltwear.

An update on the state of the ATD empire, which is getting much bigger.

Walt brings on Dean Hachamovitch.

Dean, by the way, is wearing a black long-sleeve shirt that says “private” in big white letters. Hope someone asks him about it.

Ah, and Dean has a “private” shirt for Walt, too. We’ll get to privacy in a bit, it seems.

DEAN: Working on IE 9, in beta, downloaded over 20 million times. Most important is its performance. It’s amazingly fast. Also, it blurs the boundary between Web sites and apps. And also, some talk about privacy.

WALT: Okay, that was a nice ad. But please talk about reports that you’ve been eclipsed in Europe by Firefox.

DEAN: Yes, we used to have 90 percent market share back in the ’90s. But now we look at how many people choose to use our most recent versions. “We are delighted that IE 6 market share is going down. We are delighted that IE 7 market share is going down.”

DEAN: And bear in mind how much the Internet is growing. “There are a lot of different factors. It’s a very complex situation.”

WALT: Okay, on to privacy. Safari used to have some kind of privacy feature, but that’s old. Then in IE 8, you introduced a new feature, not by default, which tried to extend that protection to other sites on the Web you traveled to.

DEAN: You were describing “over the shoulder privacy.” But we’re also concerned about tracking. There are two kinds of tracking: “Expected tracking” and “creepy stalking.”

Pandora and Amazon are expected tracking. You want them to know what you’re doing. But the important thing is that you have visibility and control, and you get benefits.

For instance, when I go to Amazon, they know that I bought Spice Girls and Fergie, and they tell me other stuff I should get.

WALT: Some of that tracking isn’t sophisticated enough.

DEAN: Anyway, creepy stalking is bad. Because consumers aren’t aware of what’s going on, and they don’t have control of it.

WALT: We don’t allow slides at our conferences usually, but we’re going to make an exception. Please show us some slides!

Dean is showing people a monitor that shows you what cookies were attached to a certain NPR page, which includes tracking info that comes from Facebook integration.

Now a Fox News page with similar info.

A reminder that cookies, by the way, aren’t the only tracking info involved here. Also pixels, etc.

But even once you root around and look at the pixels and tracking info, you might not really understand what you’re looking at or who is behind them.

WALT: Microsoft is a big Internet advertiser and publisher. Don’t you do some of this stuff?

DEAN: Yes, and in addition to us and Google, etc, there is an amazing ecosystem of information brokers. There’s a huge industry around this.

WALT: So what’s coming?

DEAN: With the new rev of IE 9, first quarter of 2011, you’ll be able to “go to a Web page, click on a button and you’ll be protected from tracking.” Any Web page can do this.

It will block content on that page. It will be an open publishing platform.

WALT: Why would a publisher want to do this? They have a legitmate need to want to know things about you, to serve you better ads, right?

DEAN: We have a lot of interest from a lot of different organizations that want to make lists. Publishers, government agencies, consumer advocacy, etc.

WALT: So, I have to download a list from someone I trust to make this work. Will you maintain this list?

DEAN: No. People will find these lists the same way that they find other things on the Web they like. From Facebook, or friends, or wherever.

We think it’s important to have people exercise judgment in making these lists. The most important thing is that you go off to the Web and find one you have confidence in.

WALT: But why do I have to hope that I go to sites that have these buttons?

WALT and DEAN are trying to explain how the list and button combination will work. Frankly, I’m confused. We’ll have to circle back to this.

DEAN: Paying Windows customers want a great experience that includes privacy, including through their browser. But another way to view people who use browsers is that they’re objects to be boxed and sold. We don’t believe that. We believe Windows customers should have a great experience with their browser.

WALT: As opposed to?

DEAN: Well, Chrome, for instance, is funded by advertising.

WALT: So is The Wall Street Journal.

DEAN: I think advertising is great. But be careful about connecting advertising with tracking. We have advertising customers, and we want them to be delighted. And we have Windows customers, and we want them to be delighted. We have a unique position on this that gives us an opporunity to lead.

WALT: All the other browsers have a privacy mode.

DEAN: But that’s for “over the shoulder” privacy, not tracking.

WALT: Some of this tracking stuff is very hard to block. Can you really protect a user from all of it?

DEAN: Good question. Flash, for instance, enables tracking “Flash cookies” and they’re inherent in Flash. Only way to turn them off is to turn Flash off.

WALT: So this won’t block Flash cookies?

DEAN: It will if you tell it to.

WALT: But that’s pretty extreme.

DEAN: Yes. We’re touching on the ambiguity to the consumer about what actually is important and worthwhile tracking, and what isn’t.

We want to help consumers make progress being in control, but it’s a work in progress. It’s happening in Berkeley and in Brussels.

WALT: Let’s switch gears. Some people, not mainstream people, are debating whether the future of entertainment and progress and productivity will be on the browser and in the cloud. Google is pushing that via Chrome OS, and they also have Android apps that store local cloud on the device. Where do you come down on that?

DEAN: It’s a great case of “and”–you’ll have local apps and cloud versions. Like with Office mail, etc. We’re doing work on speed and safety so you can feel more comfortable in the cloud. “I think it’s the best of both worlds.”

WALT: So not a religious issue? Just practicality?

DEAN: Yes.

Questions and Answers

Q: What do you think of what the FTC says about privacy?

DEAN: The paper they put out in December is a good framework. And they’ve responded positively to what we’ve put out. They’re in favor of self-regulation, and we’re eager to work with them. I’ve had conversations with them, and what they say makes sense.

WALT: You’ve been talking to competitors about working together on this?

DEAN: We’ve been talking across the industry.

Q: Who is supposed to make banking, etc., more secure? This isn’t just about someone saying something on Facebook, but opening up the wrong window and having your bank account drained.

DEAN: We take it very seriously. “Security is an industry issue. I have to say it that way, because anything that we can talk about here has multiple parties involved.” if your Facebook is hacked, was it using your banking password?

Q: I’m talking about a national security issue.

DEAN: There’s a lot of working going on within the industry, working with law enformecement, to make things more secure.

WALT: But since you have the biggest market share, there’s a lot of responsibility on you. What do you do about that?

DEAN: Well, one thing we do is put out updates every eight weeks, because things change.

But really, “the best thing you can do to remain secure is to keep all your bits updated….That would make such a difference.”

Q: Firefox has plug-ins like AdBlock, that let you block ads. They seem to be effective at blocking things like beacons, too. Are they effective and can you do something analogous?

DEAN: Add-ins require installation, etc. You need a list, too. But we’re building that functionality into IE, so you don’t need to download anything else. We’re also working with people who make lists for AdBlock Plus, and they’re eager to work with IE 9 as well.

WALT: But AdBlock blocks ads, too. You’re not going to do that, right?

DEAN: It comes down to the list. If a list author lists sites that involve ads, then they’ll go away, too.

WALT: So you could surf the Web without seeing ads?

DEAN: It depends on the list.

WALT: I do think ads are good, by the way. [Me too!]

DEAN: Right. “Ads are great!”

But this is one of the reasons the ad industry wants to create lists for this. So they can distinguish tracking from nontracking.

Q: You’ve been talking about desktop browsers. Will these features come to mobile as well?

DEAN: “We’ll be talking about our mobile browser very soon, and I’ll just smile, and you can infer from that.”

Q: How much more value does tracking really add to advertising?

DEAN: Hard for me to answer that. Maybe the next time you have one of these things, you could have someone from the ad industry.

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